In re Ojeda

• Decision Date: 11 July 1985
• Docket Number: Bankruptcy No. 7-84-00747 MA,Adv. No. 84-0208 M.
• Citation: 51 BR 91
• Parties: In re Jose Luis OJEDA, Debtor. NORWEST FINANCIAL NEW MEXICO INC., a corporation, Plaintiff, v. Jose Luis OJEDA and Edna Ruby Ojeda, his wife, Defendants.
• Court: U.S. Bankruptcy Court — District of New Mexico

51 B.R. 91 (1985)

In re Jose Luis OJEDA, Debtor NORWEST FINANCIAL NEW MEXICO INC., a corporation, Plaintiff, v. Jose Luis OJEDA and Edna Ruby Ojeda, his wife, Defendants.

Bankruptcy No. 7-84-00747 MA, Adv. No. 84-0208 M.

United States Bankruptcy Court, D. New Mexico.

July 11, 1985.

James L. Bartholomew, Albuquerque, N.M., for plaintiff.

Federico Ramon Ballejos, Albuquerque, N.M., for defendants.

MEMORANDUM OPINION

MARK B. McFEELEY, Bankruptcy Judge.

This matter came before the Court for trial on the merits on February 19, 1985. The plaintiff, Norwest Financial New Mexico, Inc., (Norwest) filed a complaint against the debtor to determine dischargeability of a debt pursuant to 11 U.S.C. § 523(a)(2)(B), for executing a false financial statement in connection with obtaining an extension of a pre-existing loan. The debtor/defendants denied the plaintiff's allegations. James I. Bartholomew represented the plaintiff Norwest and Federico Ramon Ballejos represented the defendants Ojeda.

Mr. and Mrs. Ojeda obtained a loan from Dial Finance sometime in 1981. Apparently the Ojedas filled out a financial statement at that time, although it is not in evidence. On January 19, 1983, the debtors renewed the loan and obtained additional monies. At the time of the renewal, they submitted a new financial statement. Sometime between January 1983 and July 1983, Norwest succeeded to the interests of Dial Finance Company.

On July 22, 1983, the debtors renewed the loan with Norwest and submitted an additional financial statement. In this financial statement, the debtors failed to list a $60,000.00 obligation which they had incurred to the University of New Mexico Hospital for the care of Jose Ojeda's mother.

The debtors filed their petition in bankruptcy on June 5, 1984, approximately eleven months after they renewed the note. The court ruled at trial that Norwest Financial had proved all of the elements necessary to find that the debt was nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(b), but, took under advisement whether Norwest Financial is entitled to have its entire debt declared nondischargeable because of the false financial statement submitted or whether the "fresh cash rule" will permit only the amount of additional funds advanced on July 22, to be declared nondischargeable.

Several courts have addressed this issue, yet the law in this area still seems to be unclear. In the case of In re Blatz, 37 B.R. 401 (E.D.Wisc.1984) the bankruptcy court held that only the amount of fresh cash which the bank provided the debtor in reliance on a false financial statement should be declared nondischargeable. The court reasoned that in a tort action, the injured party is entitled to recover such damages as result directly, naturally and proximately from the fraud. Id. at page 405. As citation for this principal, the Court relied on Danns v. Household Finance Corp., 558 F.2d 114 (2nd Cir.1977). At the other end of the spectrum is In re Carter, 7 B.C.D. 1046, 11 B.R. 992 (MD Tenn.1981). That court held that when credit is renewed at a debtor's request, and in reliance on a false financial statement, and no new funds are advanced, the renewed debt is rendered nondischargeable as a punitive measure. This court believes that neither of these opinions are correct.

According...